With the property market back in positive growth territory, a number of first homebuyers are again watching prices edge higher and wondering what their options might be.
Many are asking whether it’s a smarter play to “rentvest” rather than buy their first home and live in it.
If you’re unfamiliar with the term “rentvest”, it refers to a buyer who purchases a property and rents it out while continuing to rent themselves.
The concept has become popular because of climbing values in city centres.
Generally, young buyers have been priced out of inner-city markets, but that’s where they wish to live.
So, their response has been to buy in an affordable location and rent the property, while choosing to rent themselves in a more expensive and desirable area.
This way you can enter the market without losing your lifestyle.
For first homebuyers who feel challenged by the current environment, we’ve listed some positive and negative aspects of rentvesting.
Overall, there’s no right or wrong.
Rentvesting can be a smart strategy to get into the property market and build wealth while living in your preferred location.
We suggest you consult a financial adviser before moving forward with an investment property so you understand all the implications.
The Positives
Lifestyle – You’re not limited to where you can afford to buy, allowing you to be closer to work, family and favourite amenities.
Early entry – Rentvesting may accelerate your ownership journey. With values continuing to rise, the earlier you can make your move, the more affordable it should be. And you’ll be building your wealth sooner, too.
Extra income – The rent paid on your investment property will supplement costs associated with ownership. You’ll likely pay a slightly higher interest rate because the property is rented.
Tax benefits – You may be able to claim tax deductions on expenses related to your investment property, such as loan interest, property management fees and maintenance.
The Negatives
On your own – There’s no First Home Owner Grant (FHOG) or stamp duty concessions for investment properties.
Your rent – You’re still in the rent trap, but now you have a seat at the property investment table. So don’t feel too bad if you believe rent money is “dead money”.
Responsibility – Maintenance expenses and strata fees will need to be paid. Unless you have a property manager, you’ll also have to deal with the tenant yourself.
Capital Gains Tax – Be aware your rental property will incur capital gains tax, whereas your primary residence will not (under current legislation). Other taxes may apply also. See a financial adviser for personalised advice.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.